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1 Stock to Play Canada's Oil Sands

Production from Canada's oil sands is expected to grow by almost 300% over the next 17 years. One company trying to capitalize on this enormous growth is Canadian Natural Resources.

Canadian Natural ResourcesOne of Canada's major oil sand players, Canadian Natural Resources (NYSE: CNQ) , has big plans ahead of it. Canadian Natural Resources' Horizon Oil Sands project is currently producing ~112,000 barrels of liquids a day as of September 2013.

Looking further ahead, Canadian Natural Resources plans on increasing the capacity of its Horizon Oil sand project to 250,000 bbl/d, which it eventually hopes will hit at peak capacity of 500,000 bbl/d.

If the project can reach that level then Canadian Natural Resources will be pumping out synthetic crude oil at $25-35 a barrel. This will lead to major free cash flow growth and enormous growth potential.

The president of Canadian Natural Resources plans on having Canadian Natural posting free cash flow of $1 billion in 2014, which will grow to almost $2 billion in 2016 and will skyrocket from that level to $5.5 billion-$6 billion in free cash flow over the next year years after that. In order to reach that level, Canadian Natural Resources needs to fully expand its Horizon Oil Sands project.

Canadian Natural Resources has enormous growth potential ahead of it, but it needs to make sure it can deliver. So far the project is costing 43% more than what it forecasted back in 2004, which leaves plenty of room for costs to keep creeping higher. While this has a high chance of happening, if Canadian Natural Resources can reach full capacity at its Horizon project then it can easily mitigate those costs over more production.

Canadian Natural Resources has major growth potential ahead of it, but other players do as well. Many have heard about TransCanada's (NYSE: TRP) Keystone XL pipeline, but few known of its true potential.

A smallerdifferentialCurrently Canadian heavy crude trades at 80% of the price of WTI. TransCanada is merely trying to lend a helping hand and is offering Canadian Natural Resources a chance to fetch prices closer to WTI, as long as TransCanada can build the Keystone XL pipeline.

For the American public, if the Keystone XL pipeline can be completed then more cheap Canadian oil can head to America's refiners on the Gulf Coast, which will put downward pressure on American gasoline prices.

If TransCanada can build the Keystone XL pipeline, then major oil sands players in Alberta will be able to transport their crude to the more profitable Gulf Coast. The Gulf Coast will offer Alberta the best prices for its crude, and the additional 830,000 bpd of capacity has the potential to reduce America's dependence on crude from the Middle East and Venezuela by 40%.

While it's hard to say when TransCanada's Keystone XL pipeline will be completed, it has a good chance to get regulators approval in the next few years as Americans demand lower gasoline prices. If it does get approval, then E&P players will benefit along with TransCanada, which will have a new huge cash stream to profit from.

Final thoughtsCanada's oil sands offers great returns for whose willing to wait. Canadian Natural Resources has the production potential, but the question is, will TransCanada be able to supply the transportation capacity?

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